In a meeting I attended earlier this month, I overheard a conversation where one person explained that “people with good credit will now be paying for those with bad credit when it comes to getting a mortgage loan.” As with any news, I set out to find what this person was referring to and to verify its legitimacy.
As it turns out, there has been an adjustment to the fee structure for loan-level price adjustment (LLPA) by lowering fees for some borrowers and raising it for others. This is not an interest rate hike, it’s a one-time fee.
What we are talking about is a loan fee. For instance, beginning May 1st, a homebuyer with a credit score of 650 (which is considered “fair”) who is buying a home and taking out a mortgage loan and comes in with a down payment of 5% will incur an LLPA of 1.5%. Before this change took place, the fee for this group of buyers was 2.75%, which is a significant decrease, about $5,000 fee decrease for a $400,000 home purchase.
On the other hand, for a buyer with a score of 750, (which is considered “very good”) who put 20% down on a home will have an LLPA of 1%, compared to 0.5% previously. For the same purchase, their fee will double from $2,000 to $4,000.
Let me remind you, this is a one-time fee that has nothing to do with the interest rate.
The reason for the federal government to make this change is in an effort to provide equitable access to home ownership. Equitable access to home ownership simply means that everyone should be able to secure a home loan, regardless of their race, ethnicity, gender, age, address and now, credit score. It incorporates our values of inclusion, equal access to opportunity and diversity in our communities. This strategic approach will help leverage affordable housing investment dollars, services and protections, ensuring that all people have a range of choices for where to live now and in the future.